Question

Match the following letter for the correct number

A.	Fixed Factor or Fixed Costs
B.	Total costs = Fixed Costs + Variable Costs
C.	Marginal Costs = Marginal Revenue
D.	Variable Factor or Variable Costs
E.	Diminishing Marginal Returns
F.	Specialization
G.	Economic Profit = Total Revenue - Total Explicit Costs - Total Implicit Costs
H.	Marginal Cost
I.	Marginal Revenue
J.	sunk costs

1. A small Italian restaurant has to turn away customers during a peak season rush because this restaurant is too small to accommodate them.

2. A construction business has to buy more lumber as they take on new projects

3. A bakery is thinking about hiring another pastry chef, the owner would have to pay the chef $30/hour.

4. if the bakery owner hires an additional pastry chef, the bakery can produce more croissants. When they sell these additional croissants, the bakery will make another $700 per day.

5. When determining how many hours to stay open, a firm will want to decide using a profit maximizing rule.

6. When a bar considers its costs, it includes its rent, the cost of the blender, the cost of the alcohol, the mixers, the glasses, the electricity, the workers, etc.

7. When a taxi company first hires a few workers, one is the driver, one is the dispatcher, one is the mechanic, and one is the accountant. At this initial stage the marginal costs of each additional worker is decreasing.

8. As an office adds more and more workers to the fixed number of computers, cubicles, and equipment, each worker adds to production, but the change in output for each worker gets lower.

9. If a bakery makes a batch of cookies but uses peanut butter rather than regular butter and the batch is disgusting. The bakery should not invest more time and ingredients trying to salvage the nasty cookies.

10. You complete your medical degree and residency in pediatric neurology, but then decide to open a popcorn store. To decide if this is a good decision, consider all your costs, including your opportunity cost of foregone earnings.

Answer 1

Question :

Answer :

1 is Option A, as the size of restaurant is a fixed factor

2 is Option H, as a new project will involve some marginal costs of buying lumber

3 is D, as hiring a chef is a variable cost to the restaurant.

4 is I, as they are talking about an extra $700 revenue from an additional chef

5 is C, as profit maximizing rule is MR = MC

6 is B, as they involve their all costs

7 is F, as the marginal costs are decreasing, this is due to specialization

8 is E, as the change in output is getting lower with each additional worker, this is diminishing marginal returns

9 is J, as the cost of disgusting batch is irrecoverable

10 is G, as a good decision is which gives profit after all costs covered.